Adele Spitzeder (1832 – 1895)
If you are short of money, why not set up your own bank?
Adele Spitzeder, an aspiring German actress, was familiar with moneylenders. After all, she had to visit them regularly to fund her lifestyle. Having observed their business techniques, she decided to launch a money-lending scheme of her own in the autumn of 1869, which bore all the hallmarks of a Ponzi scheme, half a century before Charles appropriated that form of fraud as his own.
Adele’s first investor was the wife of a carpenter, who lived in Munich’s poor district, Au. Lured by the promise of a return of 10% per month, she gave Adele 100 Gulden and, sure enough, received 20 Gulden a month later. News of this money-making phenomenon spread like wildfire amongst the poorer quarters of Munich and soon our entrepreneur found herself inundated with willing investors. At the height of its success she employed around 40 people.
To say Adele’s business methods were unconventional is an understatement. Deposits were kept in sacks in her house or, occasionally, in a safe in a nearby hairdresser’s salon. Her staff, unfamiliar with the requirements of accountancy, merely kept records of who had deposited what. Because most of the investors were illiterate, the receipts they signed often bore little more than a series of crosses and scratches. Not that that deterred the investors. Adele kept meeting her obligations, in that valuable commodity, cash, and that was good enough for them. Another point in her favour was that she wasn’t Jewish, the faith of most moneylenders.
To give the scheme the patina of respectability, Adele called her operation Spitzeder Privatbank, but it also went under the name of Dachauer Bank, to appeal to those clients who lived on the northern side of Munich. It was inevitable that her success would attract the attention of the authorities. In the spring of 1871 the Bavarian government tried to find a reason to shut down her operation but as Adele was paying the stated interest at the appropriate time, they could not find a reason to do so. And Adele was a fighter. When later that year the Munich city authorities sought to tax her operation as a bank and impose a greater degree of regulatory scrutiny, she successfully fought off the challenge.
But you can only delay the inevitable for so long. The principal problem with a Ponzi scheme, which pays interest out of depositors’ capital, is that it is vulnerable if investors demand their principal back. In February 1872, the Munchner Neueste Nachricten ran a series of articles intended to discredit Adele’s scheme. Proving that there is no such thing as bad publicity, the newspaper led to more investors enrolling than worried souls withdrawing their savings.
Towards the end of 1872, the court in Munich ruled that Adele’s business had to be registered formally and that it had to abide by the accounting standards of the day. Forty investors, corralled by the police, presented a petition to the courts requesting a formal audit of Adele’s books. On 12th November five auditors turned up on Adele’s doorstep, along with another group of 60 investors, recruited by a rival bank, demanding the return of their capital.
It was all too much. Adele didn’t have enough readies to meet demands and despite, like all good fraudsters, attempting to flee, she was arrested carrying what money she had. The police took control of her offices to prevent it being raided by angry customers. It was estimated that some 32,000 investors were defrauded of some 38 million Gulden and only 15% of the deposits were ever recovered. The news of the scheme’s collapse prompted a wave of suicides.
Adele served three years in chokey for improper accounting but, surprisingly, not for fraud. The laws of the time did not deem her scheme illegal. Still, she spent her time inside profitably, writing her memoirs, and then slipped away from the pages of history.
If you enjoyed this, try Fifty Scams and Hoaxes by Martin Fone